Thursday, 25 October 2012

An Olympic legacy?

“The Good news is going to keep coming.” So shouted the Prime Minister at Miliband in that cockpit that is Prime Minister’s question time in the House of Commons. And if hyperbole was an Olympic sport the two would be competing for that elusive gold.

As it is the Olympics delivered not an extra medal for Cameron but something much more valuable, growth.

This has just been confirmed by the Office of National Statisitics(ONS). Their first look at the figures show that the economy grew by 1% in the three months of the third quarter of the year. This follows a 0.45% contraction in the GDP in the previous three months.

So the ticket sales for the Olympics and the Para Olympics helped the country move out of the longest double dip recession since the Second World War. The quarter gave the country the strongest growth figures for five years.

Although economy expanded larger than expected, all the signs are that it is unlikely to be repeated.

Looking closely at the figures construction, which is a recognised barometer of how well an economy is doing, suffered a 2.5% decline in the quarter. But the Olympics would surely have contributed to the increase of 1.8% in distribution, hotels and restaurants and also to the 0.8% increase in the transport sector.

But just as quick as a ferret down a hole, the chancellor was hailing it as evidence that his policies had put Britain “on the right track.”

He went on to say "There is still a long way to go, but these figures show we are on the right track. This is another sign that the economy is healing and we have the right approach."

But that’s politician speak. The reality is that further lapses are likely. There are plenty of potential iceberg's that could puncture his optimism. The first being his continuing austerity programme. Add to that tight credit conditions against the backdrop of a world economy that is sluggish and the still unresolved serious problems in the eurozone. All in all a very toxic mix. And all factors that are likely to burst the growth bubble.

The danger is that the Chancellor believes his own spin and thinks that we're out of the woods.

The cost of the Olympics was £9 billion. Now that produced growth. Classic Keynes.

Now there’s a lesson there for our dear Chancellor. If he wants growth to continue, his austerity policy needs ditching. He needs to upgrade more than his travel arrangements.